Central government finance goes haywire in H1

Central government finance seems to gone haywire during H1 of the ongoing fiscal, 2013-14, following slowing tax receipt on one hand and strong growth in disbursement on the other. Thus, going by monthly CGA data, the gross fiscal deficit, effectively net borrowing of the centralgovernment, worked out to 76 per cent of annual budget amount by H1, vastly exceeding 65.6 per cent during the first half of 2012-13 and 68 per cent in this period two years ago.

The growth rate in tax receipt was only 4.7 per cent, a third of the pace a year ago. This resulted in the growth rate in total non-debt receipt fall by one percentage point to 11.2 per cent, notwithstanding 44 per cent increase managed from non-tax receipt, particularly dividends and profits and a positive growth in capital receipt including PSU equity disinvestment. Central government expenditure, which had shot up from 11.4 per cent to 15.8 per cent in H1 a year ago and evoked misgivings about former Finance Minister Pranab Mukherjee’s ability to curb fiscal profligacy, has increased further by 16.6 per cent in the first half of the ongoing fiscal.

If P. Chidambaram, who has taken over the reins of the finance ministry from Pranab Mukherjee, has to contain fiscal deficit at budgeted level over the ongoing fiscal, he would have to achieve around 29 per cent growth in tax receipt in H2, more than five times the pace in H1 on one hand and bring down the increase in non-plan expenditure to less than a half of the pace recorded in H1 on the other, which would leave some scope for reviving the pace in plan account expenditure. A 27 per cent steep reduction brought about in plan account expenditure in March in the last fiscal, bringing down the cumulative increase to just around 0.5 per cent, had largely helped the government to manage deficit containment for fiscal 2012-13. Unless the economy improves markedly in H2, which would enhance tax receipt, and the government is able to slow the pace in non-plan account disbursement sharply, the central government is set to miss the target of fiscal consolidation for the current fiscal.

Slowing receipt
Mirroring a decelerating economy, the annual growth rate in net tax receipt has dropped to 4.7 per cent during H1, from 15.3 per cent in the same period of 2012-13, even as the feat was better than the decline during Q1. Corporate tax increased 7.5 per cent, personal income tax 18.4 per cent, service tax 16.3 per cent and customs duty by 5.7 per cent, even as mirroring a retarding industry, excise duty collection was 8.1 per cent less on y-o-y basis. Growth rate in non-tax receipt was 44 per cent, four times the rate in H1 a year ago due to vastly better dividend and profit return. Capital receipt showed 14 per cent rise. PSU equity disinvestment netted Rs.1,478 crore (+8 per cent).

Quickening disbursement
Even as the growth rate in non-plan expenditure was maintained at around 16.6 per cent, that in plan accounting spending was more at 16.5 per cent (14 per cent). Revenue account plan expenditure was up 15 per cent and plan account capex 22 per cent. Total disbursement was up 16.6 per cent (15.8 per cent).